General Average
by
Richard Cornah
Fellow of the Association
of Average Adjusters
Introduction
Average Adjusters
The modern average adjuster is involved in a wide range of activities in the fields of marine
insurance and maritime law, and general average occupies less of our time than was once the case.
Nonetheless it has been the profession's involvement with general average that has given it its
unique status in the commercial world. The British Association of Average Adjusters plays an
important role in maintaining that status.
The Association of Average Adjusters sets high standards of professionalism and Richards Hogg
Lindley adheres to its strict code of conduct.
The aims of the Association are:
-
To promote professional standards and correct principles in the adjustment of marine claims
by ensuring, through examination or otherwise, that those entering into membership possess a
high level of expertise.
To ensure the independence and impartiality of its members by imposing a strict code of
conduct.
The average adjuster may be appointed by any member of the maritime or marine insurance
communities having an interest in the matter concerned, and, irrespective of the identity of the
party appointing him, the average adjuster shall act in an impartial and independent manner. The
average adjuster may advise any party seeking his opinion on any matter within the area of his
expertise.
Members of Richards Hogg Lindley also participate actively in the affairs of the Association
Internationale de Dispacheurs Europens and the American and Japanese Associations.
The York-Antwerp Rules
The York-Antwerp Rules have been amended on a number of occasions since the first version was
produced.
The most recent version was agreed by the Comite Maritime Internationale conference in
Sydney in October 1994 and is referred to as the "York-Antwerp Rules 1994". The YorkAntwerp Rules take effect by their introduction into contracts of affreightment and it is likely
that some such contracts will continue to refer to the earlier York-Antwerp Rules 1974 for some
years to come. The 1974 Rules were themselves amended in 1990, (Rule VI relating to Salvage)
and so practitioners may expect to see any one of three versions in use, and this book takes this
situation into account wherever appropriate.
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Any reference to "York-Antwerp Rules" in this book denotes wording that is the same or similar in
effect in both the 1974 and 1994 versions.
Acknowledgements
We are grateful to Witherby and Company Limited for their permission to reproduce the average
disbursements clauses in Appendix F.
For more details regarding Richards Hogg Lindley and the Charles Taylor Consulting group,
visit our websites on:
www.rhlg.com
www.charlestaylorconsulting.com
These websites include contact details for all our offices.
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Contents
PAGE
Chapter 1 - Origin and Development of General Average
and the York-Antwerp Rules. ....................................................................
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Basic Principle.
Example.
Events giving rise to general average.
Interpretation of the York-Antwerp Rules.
Salvage.
Adjustment of general average.
Example Adjustment.
Enforcement of rights in general average.
Tug and Tow general averages.
Pollution expenses and liabilities.
17
Persons to be notified.
Reports to shipowner by master.
Initial action plan.
Organisation.
20
Information required.
Estimated expenses.
Appointment of general interest surveyor.
Damage to cargo.
Forwarding cargo.
Insurance on general average disbursements.
Abandonment of the voyage.
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23
PAGE
Chapter 5 - At Destination. ..............................................................................................
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Delivery of cargo.
Declaration of general average.
Decision to obtain security.
Form of security required.
Cargo for which security required.
When security required.
Average bonds.
Insurers' guarantees.
Cash deposits.
Security from other interests.
Time bar.
31
Evidence of Claims.
Documents required from Shipowners.
Documents required from cargo interests.
Contributing interests and values.
Settlement under adjustment.
General average on vessels in ballast.
Claims on policies of insurance.
Unseaworthiness.
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36
A Guide to
General Average
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Chapter 1
Origin and Development of General
Average and the York-Antwerp Rules
1.
Basic Principle
That which has been sacrificed for the benefit of all shall be made good by the contribution of all.
The principle of general average was first formulated by the ancient Greeks in a maxim
dealing with the question of jettison, but it is probable that the idea itself was of still more
ancient origin. As the doctrine developed various types of losses were added to that of
jettison; perhaps the most important step was the recognition that expenditure of money was
in principle no different from the sacrifice of property, if it was incurred in similar
circumstances and for the same purpose.
General average varied in its development in the different leading maritime countries, so that
by the latter part of the 19th century substantial differences existed in law and practice
throughout the world. In view of the international character of shipping the disadvantages of
this were obvious, and there began the series of attempts to obtain international uniformity.
An International conference held in York in 1864 produced the York Rules, which were
revised at Antwerp in 1877 to become the first set of York-Antwerp Rules.
It is important to appreciate that the York-Antwerp Rules do not have the status of an
international convention. They take effect only by being incorporated into contracts of
affreightment.
Rule A of the York-Antwerp Rules defines a general average act as follows:
"There is a general average act when, and only when, any extraordinary
sacrifice or expenditure is intentionally and reasonably made or incurred for the
common safety for the purpose of preserving from peril the property involved in
a common maritime adventure."
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2.
3.
4.
The action must be for the common safety and not merely for the safety of part of the
property involved.
Suppose a vessel is carrying some refrigerated cargo and the refrigerating machinery
breaks down whilst she is proceeding through the tropics, making it imperative for her
to put into a port to effect repairs. In such a case any threat of loss or damage would
be limited to the refrigerated cargo and so far as the ship and the remaining cargo were
concerned, the voyage could quite safely continue. Thus the deviation to the port of
repair would not give rise to general average.
2.
Example
A ship carrying a valuable cargo consigned to a number of different receivers strands on a
reef. By order of the master a part of the cargo is jettisoned and as a result the vessel refloats
and, after repairs at a port of refuge, is able to complete her voyage with the rest of her
cargo.
From the facts above there would obviously have been other alternatives open to the master.
He might have engaged tug assistance to tow the vessel off the reef, risking additional
damage to the vessel's bottom and consequently to the cargo through leakage. He might, on
the other hand, have tried forcing her off using the main engine and ground tackle, with
similar risks as well as probable damage to such machinery and equipment. Each of these
alternatives might have given rise to loss or prejudice to different owners of property
involved in the adventure.
In situations of peril following marine casualties, a conflict of interest will often arise
naturally from the need to choose means for saving the situation. The owner of the cargo
jettisoned in the example might well have preferred the master to choose another alternative
or that some cargo other than his own had been selected for sacrifice. General average owes
its origin to that conflict of interest and is a device whereby, so far as possible, the conflict is
eliminated. Through general average the owner of the cargo jettisoned has his loss shared
by all the other interests involved; the owner of the property sacrificed is placed as nearly as
possible in the same financial position as the owners of the property saved by that sacrifice.
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When the vessel reaches the port of refuge a number of complex problems can arise,
particularly if it is necessary to discharge all or part cargo from the vessel in order to do
repairs to enable it to complete the voyage.
Historically, English law took a narrow view of General Average, confining it to situations
in which the vessel was in immediate danger - the so called "common safety approach".
Continental and American law took the logical step of realising that attaining a position of
safety was only a first stage in completing the original aim of the common adventure, which
was not merely that of achieving safety at an intermediate place, but of reaching destination.
To the merchant it is the completion of the voyage that is important; cargo that is safe but
thousands of miles away from the intended market is as good as lost. It was therefore
considered that General Average should continue after immediate safety had been achieved,
while expenses were being incurred to get ship and cargo to destination - the "common
benefit" approach.
At the time of the Glasgow Resolutions in 1860 when the groundwork for the first YorkAntwerp Rules was prepared the vote was 24 to 5 in favour of setting aside the English law
approach and since that time the York-Antwerp Rules have included "common benefit"
expenses.
The agreed framework for dealing with common benefit expenditure increases the likelihood
that the voyage will be prosecuted without lengthy legal wrangling and delay; the ability to
allow transhipment costs, for example, as substituted expenses will often bring the cargo
forward very rapidly indeed. When a very serious casualty has occurred, the existence of a
system for sharing certain costs (i.e. discharging, storing and re-loading cargo in order to
effect repairs) often prevents the premature and disputed abandonment of the voyage,
without prejudicing the parties rights and liabilities under the contract of affreightment.
3.
Stranding
Fire
Jettison of cargo.
Port of refuge expenses.
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detention at a port
4.
The burden of proof therefore lies on the party claiming in general average to prove that both
the general average act and the amount of any allowance are reasonable. It is suggested that
in applying this rule there can be no absolute standard of "reasonableness" and that a
situation must be judged on the particular facts prevailing at the time and place of the
incident.
5.
Salvage
In addition to the sacrifices and expenditures listed (and others not mentioned), any of the
above occurrences may give rise to a claim for salvage services. Rule VI of the YorkAntwerp Rules provides that salvage payments should be treated as general average.
It became necessary to amend Rule VI of the York-Antwerp Rules 1974 following a change
in the wording of the Lloyd's Form of Salvage Agreement. The Lloyd's Standard Form of
Salvage Agreement 1990 (LOF 1990) contained a number of articles agreed at the
International Convention on Salvage 1989. Two of these articles, 13 and 14, refer to
remuneration paid to a Salvor in respect of efforts taken to prevent or minimise damage to
the environment caused by pollution. Article 13 provides that one of the factors to be taken
into account when fixing an award is the skill and efforts of the salvors in preventing or
minimising damage to the environment. Awards made under Article 13 are paid by the
property Insurers covering ship and cargo. Article 14 provides for additional Special
Compensation to be paid by the owner of the vessel in circumstances where an Article 13
award is inadequate - for example if ship and/or cargo are a total loss.
Rule VI of the York-Antwerp Rules 1974 was amended in June 1990 in order to clarify
which of the expenses incurred by a Salvor in averting or minimising pollution of the
environment should be allowed as general average. This amended version was retained in
the 1994 Rules.
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6.
Special Compensation payable to a Salvor by the Shipowner under Article 14 of the said
Convention to the extent specified in paragraph 4 of that Article or under any other
provision similar in substance shall not be allowed in general average."
All property that is at risk in the common adventure at the time of the occurrence
giving rise to the general average act and is saved by that act contributes to general
average, according to its value at the termination of the adventure.
Cargo discharged prior to the occurrence, or loaded thereafter, does not contribute. If,
for example, a fire breaks out during loading of cargo, it will be necessary to have
accurate particulars of the cargo on board at the time of the outbreak. If the general
average consists of detention of the vessel at a port for repairs which are necessary for
the safe prosecution of the voyage, cargo destined for that same port will not
contribute even though it was on board at the time of the occurrence giving rise to the
detention, since it will not benefit by the safe prosecution of a voyage with which it is
no longer concerned.
2.
The basis for calculation of contributory values and general average losses is the value
of the property to its owner at the termination of the adventure. In the case of goods
there is an exception to this under the York-Antwerp Rules, in that they contribute on
the basis of their invoice or shipped value. This departure from strict principle was
agreed for reasons of practical convenience and economy.
3.
Since values are assessed as at the termination of the adventure, it follows that the
amount of contribution may be varied by further loss or damage to the property
between the time of the general average act and the termination of the adventure. In
the case of general average expenditure it is customary to protect the parties concerned
against the effects of this by means of a special insurance, known as an Insurance on
Average Disbursements (see pages 22/24 below.)
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4.
5.
Charges incurred in respect of the property after the general average act (other than
charges which are themselves allowed in general average) must be deducted in
arriving at the contributory value, so as to ensure that each owner of property
contributes according to the actual net benefit he has received, by deducting all the
expenses he has to bear to realise that benefit.
6.
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7.
Example Adjustment
General
Average
US$
250,000
100,000
1,150,000
100,000
600,000
US$ 2,100,000
Apportioned
Ship
Arrived value at destination in damaged
condition.
US$6,750,000
250,000
pays in
US$7,000,000 ppn.
US$ 700,000
Cargo
Invoice value after deduction
of loss and damage.
US$13,400,000
Add allowance in general
average in respect of
jettison and damage due
to forced discharge.
600,000
14,000,000
"
pays in
US$21,000,000 ppn.
(General Average equals 10% on the contributory values.)
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1,400,000
US$2,100,000
US$ 1,500,000
700,000
Balance to receive
US$
800,000
US$ 1,400,000
600,000
Balance to pay
8.
US$
800,000
(b)
Responsibility of shipowner
Generally it is the shipowner who is primarily concerned to see that rights in general
average are protected, since it is usually he who is called upon to pay the general
average expenses. The shipowner has a lien on the cargo whilst in his custody for its
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(d)
Salvage security
A clear distinction needs to be made between security for general average and security
for salvage.
Security for general average is provided to the shipowner by the cargo at destination,
whereas security for salvage is provided to the salvors by ship and/or cargo at the time
and place where the salvage services terminate.
When a salvor has brought the salved property into a place of safety he is able to
exercise a lien on the property until either his salvage award has been paid or security
given. It is not usually possible for the salvage award to be immediately determined
(unless it has been performed under a contract which states the sums payable) as there
will be negotiation, arbitration or legal proceedings.
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Under Lloyd's Standard Form of Salvage Agreement and many similar forms the
shipowner is responsible to the salvors for providing security in respect of his ship and
any freight at his risk. Each consignment of cargo is responsible for the provision of
its own security, the time charterers are responsible for the security demanded in
respect of fuel at their risk and if it is a container ship, the container owners will be
responsible to the salvors in respect of the salved containers. The Shipowners also
have an obligation to assist Salvors by using their best endeavours to ensure that cargo
owners provide security. In some cases the Shipowner may provide interim security
on behalf of cargo to enable the vessel to complete the voyage, during which time
cargo interests have the opportunity to complete the lodging of security themselves.
The security provided to the salvors under Lloyd's Open Form of Salvage Agreement
must be given to the Council of Lloyd's (in a form approved by the Council) by
persons, firms or corporations acceptable to the salvors, or resident in the U.K. and
"acceptable" to the Council.
9.
This rule will only operate if the 1994 Rules are included in the relevant towage contracts
and contracts of carriage; in the absence of any such provision the matter will be dealt with
according to the law and practice applicable.
10.
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Rule C provides:
"In no case shall there be any allowance in general average for losses,
damages or expenses incurred in respect of damage to the environment or
in consequence of the escape or release of pollutant substances from the
property involved in the common maritime adventure."
However the 1994 Rules do permit limited allowances relating to a port of refuge. An
example illustrating this is the vessel that is badly damaged in way of her fuel oil tanks and
needs to be towed into a port of refuge. Numerous precautions need to be taken to satisfy the
requirements of the Port Authority who is concerned about pollution risks. Protective
booms, for example, may be deployed around the vessel and sensitive installations and
special craft may escort her in. Under the 1974 Rules, the costs referred to in the example
can be claimed in general average in terms of Rule X(a) (which deals with the costs of
entering a port of refuge). The 1994 Rules also specifically allow such items to be claimed.
Rule XI(d) of the 1994 Rules provides:
"(d) The cost of measures undertaken to prevent or minimise damage to the
environment shall be allowed in general average when incurred in any or
all of the following circumstances:
(i)
(ii)
(iii)
(iv)
The numbered Rules take precedence over the lettered Rules so that the reference to
"expenses" in Rule C is overridden if it falls within the terms of Rule XI(d).
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Chapter 2
Code of adjustment
The contract of carriage is evidenced in the bill of lading or charter party or both, and
it is customary for a clause to be incorporated which deals with the adjustment of
general average. Such a clause might read 'general average to be adjusted, stated and
settled in accordance with the York-Antwerp Rules 1994.'
It is important that, as far as possible, both the bills of lading and the charter party
should have the same clause. If there is a difference, an amendment should be made at
the time the contract is negotiated. It is also important to see that old bills of lading
are brought up to date by including reference to the York-Antwerp Rules 1994 and
that all bills of lading in use contain the same reference.
(b)
Place of adjustment
The clause dealing with the code of the adjustment may also deal with the place of
adjustment either in general terms:
"General average to be adjusted according to the YorkAntwerp Rules 1994, at a place at carrier's option."
or it may specify the place:
"General average to be adjusted according to the YorkAntwerp Rules 1994, in London (or New York, Tokyo,
Rotterdam etc.)."
(c)
Currency of adjustment
Consideration should be given to the question of the currency in which the adjustment
of the general average should be prepared. Generally it is the shipowner who is
responsible for financing the general average disbursements and he may wish the
adjustment to be prepared in his trading currency.
The York-Antwerp Rules do not particularize the currency of the adjustment, but they
do state in Rule G that:
"General average shall be adjusted as regards both loss and contribution
upon the basis of values at the time and place when and where the
adventure ends."
This rule does not affect the place where the average statement is to be made up and it
does not necessarily imply that the proper currency is that of the place of destination.
However, the matter can be clarified, and ambiguity avoided, if the general average
clause in the bill of lading declares the carrier's option for a particular currency.
It may be in very general words such as:
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(b)
The sum claimed under the clause is subject to the deductible being applied to
the claim, and it is only the difference between the amount of the deductible and
the (US$100,000) which would be claimable.
(c)
(d)
The amount stated in the clause should be set with regard to the type of vessel
involved; thus a container ship should have a much higher limit than a bulk
carrier since the cost of collecting security from multiple bills of lading will
always be correspondingly greater.
(e)
In cases where the general average exceeds the clause limit but the
circumstances so justify, insurers may still be approached to pay the full general
average on grounds of economy.
The wording quoted above is a typical example which would work well in practice. Other
wordings may be encountered that are less satisfactory and in August 2002 BIMCO issued a
special circular setting out their recommended standard wording.
The wider introduction of general average absorption clauses in Hull policies has played a
significant part in reducing the number of general average collections from cargo. In
addition some owners and charterers of container vessels take out special insurances to top
up the hull policy absorption clause; such insurances pay a further layer of general average
losses attaching to cargo. Thus the costly process of collecting security and contributions
from cargo is avoided in all but the largest cases.
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Chapter 3
Persons to be notified
When a casualty occurs which may give rise to general average sacrifices being made or
expenses incurred, it is the responsibility of the shipowner to see that the proper steps are
taken to bring the voyage to a satisfactory conclusion.
The first step must be to notify the various parties who may be affected by the casualty, or
whose assistance will be required.
Average adjusters
Advice on the correct procedures and formalities is essential right at the beginning, as soon
as information is received that the ship and cargo are in trouble. The average adjuster is the
best person to give this advice as it will be his responsibility to ensure that involvement of all
other persons who may have to be consulted is properly co-ordinated.
Insurers
The vessel's Hull and Machinery Insurers must be advised promptly, to enable them to
appoint their own surveyor. When time is short, the shipowner may give direct instructions
to a Lloyd's agent or the local office of the Salvage Association.
Protection and Indemnity Association
Where the vessel is carrying cargo and there is a chance that it may have been damaged in
the accident or that it may be damaged by subsequent events, or a liability may be incurred
in respect of it, or where there is any risk of oil pollution etc., the Protection and Indemnity
Association should be notified.
Classification surveyor
If the vessel requires repairs before proceeding on the voyage, it may be necessary for the
classification surveyor to attend in order to see that any repairs effected enable the vessel to
maintain in Class and to advise on matters of seaworthiness.
General average surveyor
In the event of general average damage to ship or cargo, it may be necessary for the
shipowner to appoint a surveyor to act in the general interest. This appointment will usually
be made on the advice of the average adjuster, see also page 20 below.
-20-
Solicitors
When the vessel has received the services of a salvage tug or has been in collision with
another vessel, it may be advisable to consult an admiralty solicitor.
Agents at port of discharge
The shipowner's agents at the place of discharge should be notified in order to inform the
cargo receivers that there will be a delay in delivery and to lay the ground work for general
average security to be collected.
Charterer
If the vessel is under voyage or time charter, the charterer will have to be informed of the
casualty.
2.
3.
4.
Organisation
If the decision is made to proceed with a security collection, the following organisational
points need to be addressed.
-
-21-
-22-
Chapter 4
Information required
At the time of the casualty the decisions as to what steps should be taken must of necessity
be left largely to the master and others on the spot. Once the vessel has achieved the relative
safety of a port it is usually practicable for more important decisions to be referred to the
shipowner's head office and it is essential that the latter should be provided with sufficient
detailed information.
Requirements in this respect must vary according to the facts of each case but the following
particulars will be required in the majority of cases:(a)
Details of the operations which are necessary to enable the vessel to proceed on her
voyage with the cargo.
(b)
(c)
Extent and cause of damage to the vessel, what repairs are necessary, whether these
are permanent or temporary repairs and whether they necessitate drydocking or
discharge of cargo.
(d)
(e)
The recommendations of ship and cargo surveyors so far as they affect the actions to
be taken.
(f)
If the casualty (e.g. a fire) occurs during normal discharging or loading operations,
particulars of the proportion of cargo (ie. number of shipments, type, tonnage and
value as appropriate) that was on board at the time of the casualty.
(g)
(h)
If completion of the voyage with the whole of the original cargo is likely to be
impracticable, what facilities are known to exist for forwarding the cargo or what are
the possibilities of its sale.
(i)
2.
Estimated expenses
It is extremely important for the shipowner's head office to be aware of the approximate
expenditure involved at the earliest possible moment. There is often a natural reluctance on
the part of those on the spot to provide such estimates, very often due to lack of information
available to them. It should be remembered however, that whatever the difficulties of agents
and others in this respect, they are likely to have a better idea of what is involved than can be
assessed at head office.
Estimates are usually required not only to enable the various alternative courses of action to
be considered but also to enable a decision to be taken as to what, if any, form of general
average security is required from cargo and to enable insurance cover on average
disbursements to be arranged.
A message should be sent from the port of refuge to head office as soon as possible and, in
any event, in ample time before the vessel's sailing, listing the estimated expenses under the
various heads. A mere statement of total estimated expenses at the port, or of the total
estimated general average expenses, is not sufficient. The following is a typical example of
a fax message from a port of refuge which would provide information in the form required.
Estimated expenses at port of refuge.
Port charges
Cargo discharge
Storage
Reloading
Repairs (temporary)
Repairs (permanent)
Surveys, agency etc.
Crew costs
US$
20,000
120,000
50,000
90,000
150,000
300,000
2,500
1,000
US$ 733,500
Of course if estimates are requested by head office in a certain specified form this should be
followed. Estimates of wages and maintenance of crew and fuel and stores consumed will
not normally be required since these can be calculated at head office.
The situation at the port of refuge may often require that overtime be worked on some of the
operations and often the extra cost of such overtime may be allowable in general average
even though the cost of the operation itself is not. Where the amount involved is significant
it is helpful to know the approximate cost of such overtime, which should always be stated
as the extra cost over and above the cost of normal working.
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3.
To advise all parties on the steps necessary to ensure the common safety of ship and
cargo.
2)
To monitor the steps actually taken by the parties to ensure that proper regard is taken
of the general interest.
3)
To review general average expenditure incurred and advise the adjuster as to whether
the costs are fair and reasonable.
4)
5)
To ensure that the general average damage is minimised wherever possible, i.e. by
reconditioning or sale of damaged cargo. Except in cases of extreme urgency or
where communications are difficult, any significant action with regard to cargo (i.e.
arranging for its sale at a port of refuge) must be taken in consultation with the
concerned in cargo.
The authority and funds to make disbursements will generally come from the shipowner,
usually via the master or the local agents. The G.A. surveyor therefore has no authority to
order any particular course of action and his role is an advisory one. However, the
surveyor's impartial position and his influence on the eventual treatment of the expenditure
will give his advice considerable weight with the other parties involved.
It is worth noting that although the general interest surveyor may, in some cases, be
appointed by the average adjuster, his appointment is on behalf of the shipowner who is
responsible for the proper conduct of the general average and it is he who will be
accountable for the payment of the surveyor's bill.
4.
Damage to cargo
Shipowner's duty to protect cargo
The shipowner has a continuing obligation as bailee to care for the cargo in his custody and,
when necessary during the voyage, to make arrangements for re-conditioning or sale of such
cargo. Whenever practicable, decisions in this respect should be referred by him to the cargo
owner but this is frequently not possible, particularly in cases of vessels carrying cargo
consigned to a large number of receivers.
In such cases the shipowner must act himself, after taking the best advice possible, in the
best interests of the cargo. Although the master has by law certain powers to act for cargo in
-25-
such matters, in practice no action should be taken by master or ship's agent to recondition,
forward or sell cargo without prior reference to the head office of the shipowner, except in
cases of extreme urgency. The advices of the G.A. surveyor should be sought in all matters
affecting the handling and treatment of damaged cargo.
When cargo is sold at the port of refuge the proceeds should be held by the ship's agents in a
separate account pending instructions as to their disposal. The proceeds, less sale charges
and brokerage, if any, belong to the cargo and must be kept intact; they should not be used to
settle disbursements even though such disbursements are connected with the care and
custody of the cargo, except with the agreement of the cargo interests.
General average damage to cargo
It is important that the shipowner should be informed as soon as possible of the nature and
approximate extent of any loss or damage to cargo and that the information should be
conveyed in such a way that the approximate allowances in general average, if any, can be
assessed. The G.A. surveyor should be consulted as appropriate when compiling this
information and the following points in particular should be borne in mind:
Fire. In fire cases the correct classification of loss or damage is most important and
incorrect advices can often lead to confusion. Where the York-Antwerp Rules are
applicable, damage should be classified solely in terms of its precise cause, viz fire,
heat, smoke, water, foam or other means used to extinguish fire etc. It should be borne
in mind that smoke damage, albeit increased due to the use of CO2 for extinguishing
purposes, cannot be treated as "extinguishing damage" for the purpose of making
allowances in general average under the York-Antwerp Rules.
Jettison. It will be necessary not only to know the nature and amount of cargo
jettisoned but also to have some indication of whether such cargo was, at the time of
jettison, in sound, damaged or worthless condition.
Handling damage. As provided by Rule XII of the York-Antwerp Rules damage due
to discharging, storing, or reloading cargo may give rise to allowances in general
average. Damage which occurs during the course of these operations but from an
entirely separate cause, e.g. as a result of a fire in the warehouse ashore, should be
noted separately.
Every reasonable precaution should be taken, in consultation with the cargo surveyors, to
prevent handling damage occurring.
Receivers of shipments which are uninsured should be requested to submit all documents in
connection with such claims to the average adjuster as soon as possible, for consideration in
the adjustment.
With regard to insured interests, receivers should refer claims to the cargo insurers,
requesting that the latter should notify the average adjusters as soon as possible of
settlements effected by them.
-26-
5.
Forwarding cargo
A vessel may arrive at a port of refuge and be in need of major repair to enable the voyage to
be continued safely. It may be necessary to discharge some or all of the cargo to enable
repairs to be carried out.
The cost of discharging, storing and reloading of cargo would be allowable in general
average under Rule X(b) but it may benefit the parties if the cargo is forwarded to
destination by another vessel, rather than being stored and reloaded. In such a situation the
extra cost of forwarding can be allowed in general average, under Rule F, up to the amount
of storage and reloading expenses saved. Although liable in any event for general average
contributions up to the time of discharge, once separated from the rest of the adventure, the
cargo that has been forwarded would ordinarily no longer be liable to contribute to general
average detention expenses during repairs.
Under the 1974 Rules it is therefore necessary to ask cargo to sign a "Non-Separation
Agreement" under which the cargo owner agrees to contribute to the general average as
though the cargo had been carried to destination in the original vessel in return for the
benefit of receiving his cargo earlier than would otherwise happen. The recognised standard
wording is to be found in Appendix E. Under the 1994 Rules the additional wording under
Rule G makes the signing of a separate agreement unnecessary, although it does require
cargo interests to be informed if practicable.
In special circumstances the terms of the standard form of non-separation agreement or of
Rule G of the 1994 Rules may be inappropriate and it may be necessary, on the advice of the
average adjuster, for the parties to enter into an agreement designed to meet the particular
situation.
6.
-27-
good the loss prior to arrival at destination. Certain other expenses are not usually included
in this insurance, for example, maintenance of the crew and bunker consumption, unless
replaced at the port of refuge, commission and interest allowable under the York-Antwerp
Rules and adjuster's charges attaching to such items.
Only the expenses which are allowable in general average, or for which a liability has been
incurred and which will ultimately be allowable in general average, are covered by this
insurance. These are port of refuge expenses, wages of crew, repairs to ship or cargo,
temporary repairs and excess cost of overtime allowable in general average, salvage award
and legal fees, costs of administration and premiums paid on issuing security, bail fees etc.
According to clause 5.2 the sum to be insured is the estimated amount of the disbursements,
costs and charges at the inception of the risk, and, subject to a pro-rata additional premium,
this may be increased by not more than 25%. If this is not sufficient to cover the sum
eventually found to have been incurred, a separate insurance may be taken out to cover the
balance.
Example
Following a casualty a shipowner incurs general average disbursements at a port of refuge of
US$500,000 and this sum is insured under average disbursements clauses (A).
The contributory values on leaving the port of refuge were ship US$2,000,000 and cargo
US$5,000,000 making the anticipated total values at destination US$7,000,000.
Owing to a subsequent accident the values at destination were reduced to ship US$1,500,000
and cargo US$4,500,000 making a total of US$6,000,000.
The claim under the (A) clauses would be as follows:
Anticipated contributory values.
US$7,000,000
6,000,000
US$1,000,000
or 14.29%
-28-
US$ 71,450
US$ 500,000
71,450
US$ 428,550
US$ 1,500,000
4,500,000
pay
"
US$ 6,000,000
US$ 107,138
321,412
US$428,550 or 7.1425%
If there had been no insurance on average disbursements the total general average of
US$500,000 would have been apportioned over the values at destination:
Ship
Cargo
US$ 1,500,000
4,500,000
US$ 6,000,000
pay
"
US$ 125,000
375,000
US$500,000 or 8.33%
It will be seen that by insuring the average disbursements there has been a saving to ship of
US$17,862 and to cargo of US$53,588.
If the disbursements had been insured under the (B) clauses there would have been no claim
on the policy, as there was no total loss of the ship and cargo, and the contributory values at
destination were not less than the disbursements incurred US$500,000.
The cost of insuring average disbursements is allowed in general average under Rule XX of
the York-Antwerp Rules.
7.
-29-
Some circumstances which may justify abandoning the voyage are as follows.
(a)
Where the ship is very badly damaged and the cost of repairs necessary to
complete the voyage will exceed her value when repaired.
(b)
Where the likely delay for repair is so long as to fundamentally change the
nature of the contract from that which the parties originally entered into.
(c)
Where the cargo is deteriorating rapidly and cannot reach its destination.
(d)
It should be carefully noted that abandonment of the voyage vis-a-vis cargo is not the same
thing as abandonment of the ship to insurers. When a ship is so badly damaged that the cost
of recovery and repair will exceed her value (as per the Marine Insurance Act 1906, section
60) or her insured value (as per the Institute Time Clauses Hulls), the assured must give
notice of abandonment to the hull insurers if he wishes to claim a Constructive Total Loss on
his policy.
In a situation where a voyage is abandoned it is likely that contributory values, particularly
of ship, are going to be much reduced. The general rule is that no interested party can be
expected to pay a General Average contribution that is greater than the contributory value of
its property.
The fact that the voyage is abandoned does not affect the costs of entering the port of refuge.
These are allowable in general average, assuming the entry falls within Rule X. Detention
expenses, in other words wages and maintenance, fuel and stores and port charges, are
allowed up to the date when the voyage is abandoned or the completion of discharge of
cargo whichever is the later - part of Rule XI(b) covers this situation as does part of Rule
X(c) with regard to the costs of storing cargo.
There is no specific mention in the numbered Rules regarding the actual costs of discharging
cargo in such circumstances. If the discharge of cargo is necessary for the common safety,
perhaps because there is a continuing danger of fire or of explosion even within the safety of
the port of refuge, it is clearly a general average act within Rule A. However if cargo is
discharged with the intention of effecting repairs necessary for the safe prosecution of the
voyage, and that voyage is then abandoned because of the severity of the damage that is
found, the costs of discharging cannot generally be allowed as general average. The same
applies if the decision to abandon the voyage is taken prior to the discharge.
Generally, the cost of discharging cargo in such circumstances is for the account of cargo
interests, subject of course to any particular provisions in the Contract of Affreightment and
the nature of the incident giving rise to the abandonment.
-30-
Chapter 5
At Destination
1.
Delivery of cargo
With regard to general average security, it is important to stress that the shipowner retains
his lien on the cargo only for so long as it remains in his custody.
If the cargo is forwarded from a port of refuge to destination in a vessel belonging to the
same owner as the original carrying vessel, that owner will retain custody and control of the
cargo. For practical purposes this will be equally true if the forwarding is arranged by the
original shipowner on a vessel of different ownership, provided the former remains the
holder of any fresh bills of lading issued.
Where, however, the custody and control of the cargo is handed over by the shipowner to
another party for onward carriage at any place short of the original destination, this should
be regarded from the point of view of obtaining general average security in the same light as
delivery at destination. Where cargo is sold short of destination the same considerations
apply to the handing over of the proceeds as would have applied to the delivery of the cargo
itself.
2.
3.
-31-
4.
5.
6.
-32-
7.
Average bonds
In many cases specially printed forms of average bond will be sent to destination ports by
the shipowners or average adjusters and where this is done these forms should, of course, be
used. In all other cases the standard Lloyd's form of average bond as reproduced in
Appendix B below should be adopted. Supplies of these forms can usually be obtained from
the local Lloyd's agents or Richards Hogg Lindley.
It is important that all details of the cargo entered on the average bond should be clearly
shown with a view to avoiding confusion and further enquiries in the future. In particular
the full name and address of the consignee's firm and not merely the name of the individual
signing on their behalf should be included. Where a consignee is signing for only part of a
bill of lading shipment this should be made clear, as should the precise quantity of the goods
for which he is signing. It should be remembered that bill of lading numbers are often
duplicated in each section of the manifest. Thus in order to identify a shipment by the bill
of lading number it is necessary to quote the port of shipment and the port of destination as
well as the number itself. Container numbers should also be given where appropriate.
In all cases of general average, agents should ensure that a photocopy of the invoice(s) is
attached to each average bond signed. The invoice required is that rendered to the receiver
of the goods ex the carrying vessel.
8.
Insurers' guarantees
It is a common practice to accept insurers' guarantees instead of cash deposits and it has
many advantages including the saving of administrative costs. It is emphasised that the
provision of a guarantee is an alternative to the payment of a cash deposit and not an
alternative to the consignee's signature to an average bond. Both bond and guarantee must
be signed before the goods in question can be released.
The form in which guarantees are provided varies but where special forms are provided by
the average adjuster these should be used if practicable. A specimen of such a form is shown
in Appendix C. Many insurance companies have their own printed form of guarantee and
this is acceptable if it is in no way limited, i.e. provided the insurers guarantee the whole of
the consignee's liability for general average, salvage and charges whatever that may be.
Thus a guarantee limited to the insured value of the goods is not acceptable.
Guarantees should be accepted only from reputable insurers. The policy of shipowners in
accepting or refusing a guarantee varies, particularly where collection under such a
guarantee can only be made in a currency which is not readily transferable and where the
guarantee is signed by agents acting on behalf of insurers themselves. Any specific
instructions in this respect which are given to agents in an individual case should be
followed and any doubts as to the acceptability of a guarantee should be referred to the head
office of the shipowners or the average adjuster.
-33-
9.
Cash deposits
The rate of deposit to be collected will be advised as a percentage of arrived values,
normally invoice values. Where goods are damaged and the agents are not satisfied that an
accurate assessment of the damage can be made at the time, the deposit should be collected
on the full value and the consignee advised to apply for a partial refund, if worthwhile, in
due course.
A deposit receipt should be issued unless the Adjuster advises otherwise. It should be
remembered that this receipt is a bearer document which entitles the holder to any refund
applicable thereto. For this reason no duplicate or copy receipts should under any
circumstances be issued and no full or partial refund of deposit should ever be made except
against production of the original deposit receipt. If the original receipt is mislaid, the matter
should be referred to the adjuster who may recommend payment against a letter of
indemnity.
Refunds of deposit prior to final adjustment and settlement may be required in the following
circumstances:
(a)
When a satisfactory insurers' guarantee is provided after a deposit has already been
collected. In such cases it is essential that the original deposit receipt be first obtained
from the party to whom refund is made, cancelled and kept for sending to the adjuster
in due course.
(b)
Partial refunds may be necessary in individual instances where deduction from the
arrived value for damage was not made originally or generally in certain cases where
it is later found that the rate of deposit fixed initially was too high. The original
deposit receipts should again be obtained and suitably endorsed to show both the
amount of the refund and the amount of the deposit remaining.
A separate deposit receipt should be issued for each individual shipment, a photocopy of the
receipt should be sent to the adjuster in due course.
Rule XXII of the York-Antwerp Rules deals with the treatment of cash deposits. As regards
trustees, the usual practice when the deposits are held other than in the country of adjustment
is to appoint the ship's agents as trustees on behalf of the ship and Lloyd's agents as trustees
on behalf of the cargo. The funds should be placed in an interest earning account wherever
possible. Special instructions will be given in each individual case as to the trustees to be
appointed and as to treatment of the deposit funds generally. It is important that funds
should not, without prior reference to the shipowner or adjuster, be placed in an account
where withdrawal at short notice is impracticable, because of the possibility of refunds or
transfer being required. Deposit funds should be kept in the country and currency in which
they are deposited and transfer of funds to another country should never be made without the
authority of the shipowner's head office as well as the consent in writing of the depositors to
such transfer.
Deposit funds remain the property of the depositors and should not be used to settle
disbursements, even general average disbursements, without the express agreement of the
-34-
cargo interests.
If the general average clause contained in the contract of affreightment does not specify the
currency in which deposits are to be collected the shipowner should, before collecting
deposits, consider carefully the currency in which the deposits should be paid. It should be
to the advantage of all to have the deposits paid in a strong and freely transferable currency,
even if this has to be obtained in a country other than the destination of the cargo.
10.
11.
Time bar
Most countries have legislation which provides for a limit on the time during which claims
in general average may be made. The differences in the periods between countries vary
considerably and care should be taken, at the time general average security is obtained, to
enquire what the limitation period is in each case.
-35-
Chapter 6
Evidence of Claims
Under the York-Antwerp Rules the onus of proof lies on the party claiming in general
average to show that the loss or expense claimed is properly allowable.
Under Rule E of the 1994 Rules, any claimants must give notice of their claim in writing to
the Average Adjuster within twelve months of the end of the voyage. A similar twelve
month limit applies to the provision of evidence to support a notified claim, after which the
Average Adjuster is at liberty to use estimates based on the information available.
2.
Log extracts and reports from the master or other relevant parties showing the
dates and times when the vessel deviated, arrived at port of refuge, left port of
refuge and regained her position.
(b)
Any survey reports, whether surveys were held on behalf of insurers, shipowner
or the Classification Society, dealing with the vessel's resort to the port of refuge
and/or any repairs effected there, together with accounts covering cost of survey.
(c)
Details of any repairs effected at the port of refuge, stating whether they are
temporary or permanent repairs, and also how much of the repair account
represents the costs of overtime worked by repairers.
(d)
Details of any shifting or discharge of cargo at the port of refuge, stating whether
such shifting or discharge was necessary either in order to allow repairs to be
effected, or for the common safety. If any costs have been incurred in this
respect, the accounts for same.
(e)
(f)
Details of wages and allowances paid to crew of vessel at the time of her resort
to the port of refuge.
(g)
The daily rate of maintenance paid in respect of victualling the crew of the
vessel.
(h)
-36-
any
shipowner's
(i)
Details of fuel and stores consumed in deviating to the port of refuge, while
detained there, and in regaining position.
(j)
(k)
All accounts should be marked with the date on which they were paid by the
owner.
(l)
(m) Where the freight is payable at destination the adjuster will require copies of the
accounts showing amount of freight earned and the cost of earning the freight.
-
(b)
(ii)
Accounts for repairs to the vessel should also be divided in this way.
(iii)
(ii)
(iii)
If the vessel has been refloated with tugs, a copy of the salvage contract.
(iv)
Accounts for any costs incurred lightening the vessel, e.g. lighterage.
(b)
(c)
(d)
Any reports of survey on the cargo held directly following the casualty or at the
ports of destination.
General average security documents furnished by cargo interests, i.e. average
bonds, general average guarantees and invoices.
(e)
(f)
-37-
3.
4.
A copy of the C.I.F. invoice, if not already provided with the G.A. guarantee.
(b)
(c)
Subrogation receipt.
Whether the freight earned on the voyage contributes to the general average will depend on
the terms of the contract of affreightment.
Where the bill of lading or the voyage charter party states that freight is prepaid and not
returnable (ship and/or cargo lost or not lost), the value of the freight will be included in the
value of the cargo (CIF) and will not contribute as a separate interest.
-38-
Where, however, the freight is payable at destination only on right and true delivery of the
cargo, it is at the risk of the carrier and will contribute on its net value, i.e. the gross freight
earned, less the cost of earning it, such as port charges at destinations, cost of discharging the
cargo, crew's wages and fuel consumed in completing the voyage (usually referred to as
'contingent expenses').
Where a vessel is trading under a time charter and the freight payable under the bill of lading
is prepaid, the shipowner escapes contributions on his time hire, but where the bill of lading
freight is payable at destination a division is made between the interests of the shipowner
and the charterer according to the respective amounts each has at risk.
Time charterer's bunkers
When, under the terms of a time charter, the charterer provides the fuel, he will be called
upon to contribute on its net value at destination.
Containers
Containers saved by a general average act will usually be called upon to contribute on their
net value at destination. If this valuation presents problems then the insured value or written
down value may be taken for contributory purposes.
5.
6.
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Freight at risk contributes on its net value i.e. gross freight less the voyage expenses
incurred in earning that freight (usually called "contingent" expenses) since its net
value is the true value to the Shipowner.
The questions of whether freight is at risk and the amount at risk are governed by the
contract that is closest to the cargo owners.
When a vessel is proceeding in ballast to load cargo under a voyage charter, the
contributing interests to any general average occurring on that leg of the voyage are
the ship and the freight (net of contingent expenses) received at the final destination,
which is where the adventure is deemed to end.
When the vessel is proceeding in ballast and under a time charter alone or a time
charter and a voyage charter entered into by the time charterer, the contributing
interests are the ship and the time charterers' bunkers; the voyage is deemed to end at
the first loading port at the commencement of loading.
When a vessel is in ballast neither time hire or time charterers' voyage freight is
brought in to contribute.
If the vessel is sailing in ballast but not under charter, most insurance policies contain a
"Ballast General Average Clause" (see Clause 11.3 of Institute Time Clauses Hulls) under
which Hull Insurers agree to pay general average expenses.
Finally it is important to remember that any third party owned items aboard the vessel give
rise to a community of interests amongst which liability for general average contributions
may arise. This is so even if one would not normally refer to such items as cargo - for
example a special equipment package belonging to an oil company which is put aboard a
supply vessel to carry out survey work.
7.
-40-
8.
Unseaworthiness
General average situations may arise out of the unseaworthiness of the vessel and in such
circumstances the cargo may have a defence to any claim by the shipowner for general
average contributions, if the shipowner cannot demonstrate that he exercised due diligence
to make the ship seaworthy.
Where there is such a breach in the contract of carriage and cargo refuse to pay, the
shipowner's Protection and Indemnity Club may be liable to reimburse the shipowner for the
cargo's contribution to the general average.
The Protection and Indemnity Clubs do not pay if the inability to recover from cargo arises
from inadequate security being obtained, insolvency of cargo or their insurers, or if the cargo
simply do not respond.
-41-
-42-
Appendix A
York-Antwerp Rules
1974 &1994
York-Antwerp Rules, 1994
RULE OF INTERPRETATION
RULE OF INTERPRETATION
RULE PARAMOUNT
In no case shall there be any allowance for
sacrifice or expenditure unless reasonably
made or incurred.
-43-
RULE A
RULE A
General
average
sacrifices
and
expenditures shall be borne by the
different contributing interests on the basis
hereinafter provided.
RULE B
RULE B
There is a common maritime adventure
when one or more vessels are towing or
pushing another vessel or vessels, provided
that they are all involved in commercial
activities and not in a salvage operation.
-44-
RULE C
RULE C
RULE D
RULE D
-45-
RULE E
RULE E
RULE F
-46-
RULE G
RULE G
-47-
-48-
RULE
VI.
REMUNERATION
SALVAGE
-49-
-50-
RULE
IX.
CARGO,
SHIP'S
MATERIALS AND STORES USED FOR
FUEL
RULE X.
EXPENSES AT PORT OF
REFUGE, ETC.
-51-
-52-
-53-
-54-
-55-
RULE XIII.
DEDUCTIONS FROM
COST OF REPAIRS.
-56-
-57-
-58-
CONTRIBUTORY
-59-
-60-
-61-
RULE XIX.
UNDECLARED OR
WRONGFULLY DECLARED CARGO
RULE XIX.
UNDECLARED OR
WRONGFULLY DECLARED CARGO
-62-
RULE XXI.
INTEREST ON LOSSES
MADE GOOD IN GENERAL AVERAGE
RULE XXII.
DEPOSITS
TREATMENT OF CASH
-63-
Appendix B
-64-